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just the real brief agenda you probably saw on your materials I'm going to talk very briefly on how state tax regulations impact the sellers jerk journey and just kind of give you a big 10,000 foot view of what's going on in the state regulation land and then Robert is going to talk about the pitfalls of South Dakota versus wayfarer in broad terms and then Shelley's going to get into the business side of things on ma and the best Jers and all the rest of that and so we'll go from there let's start with the state regulatory environment now as I described I don't think any of us and all of us have been practicing for a long time and seeing a lot of tax changes I don't think any of us were prepared or could imagine the result of South Dakota versus wayfarer and the flood of state laws that have come out of this is incredible I'm reminded of the movie airplane if you remember when the plane is landing the families are waiting at one gate and then flight 178 now at gate 17 now at gate 18 now at gate 19 and that keeps moving down and that's exactly how these regulations have come down line these new state laws I mean legislators are pouncing on this most state legislators that that have been already enacted a sales tax have enacted post Wayfair legislation and I think there's only two like Missouri and there's another state that happened to them by right technically three but we'll get into that there okay Missouri Florida and Kansas have not yet I know there are bills pending in Missouri I'm not sure about the other two states and that doesn't mean that they're not still trying to collect sales tax right right the lot of them have tried to piggyback on that and so one of the things that we've seen of course is this tremendous onslaught of state law regulation that have come out of it that a lot of states are mirroring the law that was upheld in the Supreme Court decision in the South Dakota versus Wayfarer and I'll give you a little bit of the Reader's Digest condensed version and Roberts going to talk a little bit more than I am but basically the Supreme Court decision South Dakota versus Wayfarer overturned years and years of constitutional authority that either through the due process or the Commerce Clause a state could not impose a sales tax obligation on an out-of-state seller unless they had some kind of physical presence in that state and the the South Dakota law in question had economic Nexus so if you had a hundred thousand dollars of sales or two hundred or more transactions than South Dakota imposed a requirement to collect the sales tax on retail sales coming into the state and of course we all know through the web and what-have-you most sales or many sales go through the web and so that was it had a tremendous impact on the e-commerce business and on the seller so when the Supreme Court did that many legislators said what the heck we'll adopt those same kind of law that just passed mustard in South Dakota and they enacted very similar legislation some state I think it was Maryland am I correct that the Maryland Department of Revenue when it first came out they weren't gonna wait for the legislature to pass the legislation they said well we're going to go ahead and those attacks ourselves on out-of-state sellers it was Maryland wasn't it well Rhode Island I believe was the very first one and they put the statute into place back in 2017 yeah so I don't know if that's the one you referring to I'm thinking administrative Lee Maryland decided that Maryland Department of Revenue whatever they call themselves decided hey this was what we're going to do so it was a little unnerving that they decided to take it upon themselves but I think since that Maryland's probably passed legislation anyway but and again California and Florida didn't have any legislation originally and they were going after it based on the fact that Amazon had warehouses and various sellers had product in warehouses in California in Florida and those states were going after based on pure physical Nexus so you didn't even know your product was in an Amazon warehouse in California or Florida and those two states have now taken the position that they can go back to 2015 or earlier if you've had product there so they don't care that they don't legislation although California of course now has legislation and Shelley are they asking them to prove that prove that they didn't have inventory they're not really they subpoenaed all the information out of Amazon so it's not really a matter of proof because Amazon had to comply with the subpoena so they know it's it's really and California is being very aggressive about it and we're gonna talk a little bit about California so we'll come back to that one so California is my understanding you'll correct me if I'm wrong Robert they initially they adopted away fair legislation South Dakota legislation hundred thousand dollars or two hundred transactions and they probably found it was just too cumbersome to administer because California is a lot bigger state obviously a lot more people than South Dakota so they change the legislation to half a million dollars a year in sales nonetheless is Shelley's pointing out they're being very aggressive even pre Wayfair they announced after the wayfarer decision well that's okay we have this but you know new legislation and all that but we're going to go back on the basis of inventory for the Amazon sellers because amazon has big facilities out in California and if you store your inventory out there you may not even know you have inventory out in California that's close enough her physical axis under the prior constitutional standard and so we're going after that as well well in Amazon had challenges to let their customers know that they had inventory in California or wherever because you could you could run a report and I think you had to go through a third party to get that report you had to run a report to find out where is my inventory and they could tell you where your inventory was as of the date you requested it but there your inventory moves around all the time you don't know where it was yesterday you don't know where it's gonna be tomorrow yeah that's exactly right because your inventories always in transit and Amazon has the right and stas way fair it's not so when you keep talking about Amazon and Amazon rules this applies to all marketplace sellers so Walmart's a little different you could be in the Walmart marketplace and they move all of the product around as well but they work a little differently but jet which is owned by Walmart works this way Alibaba is eventually going to get into the United States and it works this way way very has a similar structure so all of these companies are moving your inventory around based on their predictive needs not necessarily based on where you asked to have your inventory so you don't necessarily know where it is just a side note on California so one of the wonderful things California did for us is they actually came forward and made an announcement they're only gonna go back to 2015 because originally they were going back to the very first Amazon warehouse which I believe was 2013 in California and so they were as a courtesy so 2015 and I don't know if you you know you may not read this stuff the way I do but in there's a guy in Philadelphia who sells clothing and other sundry accessories you know women's women's accessories and he received as was in the paper about two weeks ago he received a notice from California demanding 1.6 million dollars for back sales tax due that that was their estimate of what he owed and you know his response was almost you know basically impossible when he hasn't been in business that long and he certainly didn't sell enough in California to oh one point six million dollars and so he you know he says he's going to go through and fight this and I'm just getting this out of a newspaper article but even if he's right he now has an added cost of proving it and so you know you can imagine what the disruption is to an online seller and you know my case a lot of my clients are pasted overseas they looked at it and said we don't have to do this well you know how are they going to get us but there's a reality that California's staffed up they're prepared to go after people and and their numbers are all based on what they got out of these marketplace seller and facilitators and then they're extrapolating yeah they weren't quite staffed up for a hundred thousand dollars right and they like you said they increased it in April of last year where I guess it was about late February early March where they increased their threshold to five hundred thousand dollars well the threshold was one hundred thousand dollars from January 1st until into February early March and then they bumped it up so we actually had clients I don't know about you guys but we had clients that registered with California because they met the hundred but may not meet the 500,000 so now what do they do they do they deregister is it worth is it worth it to deregistered and you know are you going to eventually get to that 500 shortly you know they had some things to think about they that thing registered but and well we're going to talk about marketplace facilitator a little bit later but keep in mind if you have a Shopify account or you have a website on which you sell or you perhaps have a phone line you'll pick in the day when I was a sure Williamson we created the first 1-800 wallpaper line and you know that was in the 90s and you could call and order your wallpaper no one knew what Sherwin Williams you were colleague but nevertheless we had all those kinds of facilitations in place and if you're selling through Amazon and you trigger because of Amazon as far as those other sales go they're triggered so if you think you're okay just registered and in California's issued regulations on this by the way so there's a book uh-huh it's online and if you think you have triggered under the amazon rules even though amazon may be collecting for you you've triggered even if you just sell one more product and you ship it to California you need sales tax on that one product so this is it's it's very administrative Lee if you can't tell this it's a huge huge challenge even if you want to be compliant you know for us old lawyers who you know remember in the world of Interstate Commerce and the whole goal was not to burden interstate commerce I don't know what to call this I that was the whole point of the dormant Commerce Clause now of course if you've read the Supreme Court decision Congress is free to change that decision and set uniform rules but I'm not sure they can agree that you know today is Friday much less what we should do about something like this just real briefly Ohio kind of did the reverse they had a half the dollar cap and then they changed it back to the South Dakota one hundred thousand two hundred cap Missouri is stuck in limbo as I said there was legislation that was proposed along the hundred thousand two hundred sales a line but it really hasn't gone anywhere I suspect Missouri even Missouri will catch up with that because there's just too much money for these states and Vow might of you're headquartered or have offices here in Missouri or a warehouse here in Missouri even if they don't have an online requirement you still have physical Nexus so if you're not registered in Missouri and you're in this room you need to call one of these guys but and Missouri's challenge with getting the statute in place is the old court case that says that use tax cannot be higher than the sales tax so right now we have in Missouri we have jurisdictions that have a use tax rate of four point two to five they have and so if they if Missouri they also have jurisdictions that we have what st. Louis is like nine or ten point one percent something like that so so that's a huge difference so what's what tax rate is Missouri going to put in place is it just going to be used be the use tax rate for these remote sellers that's what they've been challenged with they didn't they wanted to make it easier on taxpayers so they wanted to make it a consistent rate so one of our senators put out a bill that said okay we're just going to make it a six and a quarter rate so it's easier on the remote sellers to collect six and a quarter what he what he didn't while he addressed it but his the way he handled the higher use tax rate because you're gonna have jurisdictions with the sales tax rate that's four point two to five well now you have a six point two five use tax rate which is higher which is unconstitutional in Missouri so the way he tried to handle that was well if you're in that 4.2 to 5 jurisdiction or something lower than six and a quarter then you can file a refund for the difference so basically took the burden off the remote sellers and put the burden on on a Missouri on the Missouri purchaser to get their refund back well that's ridiculous yeah that's impractical it's it's ridiculous to expect a purchase or even know that they can do that much less go through the process of filing the refund that bill did not get it was not selected as the the bill to push forward but it was just there was those were the kinds of things they were thinking about and that's why it's taken so long there is one in process it's just not it's not passed yet but I would expect that they're gonna figure something out because even if you're taxing at the lowest rate at that four point you that's something it's better than nothing I think that maybe they work out the constitutional state constitutional challenges they're gonna work those things out eventually but right now I suspect that the goal will be you know half a loaf is better than on let's get let's get something in the pipeline for these other states are doing an Illinois adopted South Dakota type legislation one hundred thousand dollars of sales or 200 transactions and what's the what's amazing about that number 200 transactions it didn't stop the co2 get rid of that limitation I think South Dakota got rid of the two hundred transact because it's just too impractical because if you're all you're selling your items that are worth twenty five dollars or something like that it's just not practical to sell into the state in terms of cause I knew they I know they were considering it a number of states have gotten rid of it they've just decided it's a you think about it a lot of these remote sellers they may sell something for ten bucks you know it 200 transactions as two thousand dollars right so you know it's a big difference between that and a hundred thousand so a lot of them are getting rid of the transactional piece of it which but it's still out there it's still out there so what are the the practical effects in the course Shelley can wax and talk all day about this stuff but of course you have enormous compliance costs there's software out there as we discussed last time and it's got to be continually updated and you have to pay a lot of money for it so if you're a remote seller you got to think about your transaction if I'm only doing 200 transactions I'm only doing a hundred thousand dollars of business how am I going to comply with that and my compliance costs going to be more than what I'm taking in by the time I get to Sunday and get it done and we're going to talk later about what that means if you ever want to sell your business and how that might play into your future sale now there's streamlined sales taxes is a thirty states now Robert how many says yeah it's about that's about thirty states where you can register and you'll on one place and you'll register for all those states and the consideration I suppose is if I do that then what if I'm paying or collecting on taxes on states that I hardly ever sell to that I would not meet the minimum threshold so you got to get some of those considerations of that there's audit considerations because the Shelley was mentioning these Department of Revenue they'll go directly to the Walmart or the Amazon or whatever to collect their data so they're gonna know about it and they're gonna go aggressively against these company they have been if we back up just a second on the streamline sales tax yes you an register through streamlined sales tax and we've done that you know one thing to consider is you're going to once you do that you're going to get a bunch of notices from each of those states and notices are going to be well you know we understood you registered through streamlined we also need this information that information this information that information and you have to so it's it's almost like filing an application it is shorter and somewhat easier to do but just know that the states are going to be contacting you with the additional information that they need and streamline tell streamline warns you about that whenever you're going through streamline so unless you want to deal with each of those it would be a good idea to have somebody to help handle all of those and they don't even in the states that aren't streamlined if they're getting information off of their subpoenas those letters are still coming to you you know even in the independent states with you know a whole questionnaire about what your sales were in to the state mm-hmm so some of these things will be right for litigation we're gonna see in the future or like I said income taxation because South Dakota versus Wayfair was only on sales and use taxes is there an argument even outside of the 86 to 72 for constitutional challenges to an income tax will see physical Nexus is mentioned that still with us so is as we were saying if you have Shelley was saying you have presence in a state doesn't matter whether you are under the hundred thousand dollar threshold or not if you're physically have a small mom-and-pop shop here in st. Louis or over in Illinois yeah you still got to collect the sales tax that has not changed at all if you have any kind of physical presence the states will dinya and as we were talking about with California that might mean even transitory inventory being stored in an Amazon warehouse for a few days and they'll still view that as being good enough even though you may not meet the half-a-million-dollar remote seller threshold and the physical next if you have had physical Nexus going back once you go through this and determine well we've always been there we've been there for the last 5-10 years then make sure you make sure make sure you think about a voluntary disclosure opportunity there to kind of to cut out the penalties in some states with the interest and that can reduce your liability and and we've had said well there's a lot of companies out there that are capitalizing at this point in time because of Wayfair because the states are so busy that we're going to register and go forward on this even though maybe we have had Nexus in the past but we're going to take the chance that they won't that they're not going to come after us we're just going to rest you're going forward and then once you get past the statute of limitations it's less likely that they're going to go back they still have that ability because you were never registered during that time but it's less likely yeah it's kind of interesting because you know in certainly federal law and I think stayed as well if you fail to register when you think when they think you should have been or you failed to file a return I don't know if the statute even runs it doesn't they can go back as long as they want so it's kind of crazy but most of my clients are looking at this prospectively and are kind of biting the bullet on the back you know backlog and hoping that they can solve the problem going forward in the battle satisfy most states and I think other than California and a few states it seems to at least not have caused the states to look backward I think they're happy to be getting something going forward but but there's no guarantee that once they get through this backlog that they won't go and look retrospectively mm-hmm and Robert knows this once a state gets you in there and their viewfinder if they don't like it for some reason they'd like the IRS I mean you know they don't like it for some reason then they will go back as far as they can so you never know when you win that audit lottery and and just lose the audit lottery has been probably better and you know they're going to come after you a big time for that and they just because they don't like the cut of your jib or whatever it is so one of the things that we might want to take a look at is what kind of entity do we want to put up some firewalls if we have a conglomeration of businesses do we want to separate those businesses out because if the state comes back with a whopping million-six bill like that fellow in Philadelphia and there's no way he can afford that is there a way to protect the assets of other businesses from that kind of liability by looking at separate corporations separate businesses etc etc and maybe brother/sister corporations with a holding company however you want to do that but that's one consideration what's the worst they can do to me if I have separation and look at it what kind of firewalls do I need to put up going forward no brothers in mind there are fraudulent conveyance laws right and as much as it sounds like a great plan if you simply stop doing business in entity one move all of your sales to entity two and there isn't a transfer of assets for fair value there's a high probability they're coming after entity two because that was a fraudulent conveyance so the question becomes what if it's just a brand-new business you're not actually transferring assets you're not transferring your Amazon account you're not transferring your you know whatever sellers central other seller marketplace counts you're just literally starting a new business you might have a better a better argument and it's only the business that's tainted but if you're actually moving your cells and I know they're gonna follow what we're going to talk about bulk sales on a little bit but I there's a high probability the states will eventually follow it and then you also and keep in mind that if you're considering that changing the entity or whatever keep in mind there are affiliate Nexus laws so you they have to be completely different so if you have an entity here named X Y Z and then you have an entity over here named X Y Z sub you know whatever and it's a similar name they're selling a similar product or at least it's very related then your affiliate Nexus laws are going to kick in and they can they can go after both companies and some have actually pointed out that they're using an aggregate sale as a way to meet that threshold so then you have they would take the aggregate sales between both companies to determine if you're hitting that nexus so if both companies are under $100,000 but both of them together are over a hundred then you've met the threshold but certainly in a case where you have totally separate lines of business and this is just law school 101 everybody kind of know you got to separate out you know keep East is East and West is West don't mix the milk with the meat right so you want to keep those separate so if you have a wholesale business over here that the that would never collect sales tax that doesn't sell in a retail and you have your retail business over here absolutely you need to keep them separate because you don't want the states start looking at what are you really doing in that wholesale business and then start to deem that for the liabilities of the retail business so kind of along that same line and we're in his next point is M&A but these are kind of integrated topics right so I have a client who has acquired a couple of you a companies and they are uk-based but they were selling in the United States and because of the way Amazon works in the UK it's easier to buy the that what's the equivalent of the stock of the limited in the UK than it is to transfer into an asset to yell because it's very hard to move assets and and with the v80 in the way it all works in the UK it's hard to do it so these are stock deals the challenges they were selling the United States they've never collected sales tax so the seller in our world we are going to talk a little bit about how how we did these escrows and different things for this but my buyer my client picks up the stock of a company that has never paid sales tax in the United States the decision we made was to actually use this kind of entity structure we formed a new entity that purchased the assets of the US operations only move the US Amazon account and call them and that is a fresh start we know that the old company the UK company still has the backlog of the sales tax issue but we did it quite intentionally because now the seller has the liability for any sales tax he didn't pay while owning the UK company but we have a hard line we have because the buyer has registered his new company for all the US sales and immediately upon you know immediately upon initiating that company is registered in all 50 states and is selling and is you know paying in collecting sales tax that UK company we assume will eventually be tagged and and and it will you know I'm sure they're going to come after the whole structure the you know that little parent US company and this UK company but it was a way for us to be able to identify what the seller owes and we'll talk a little bit because we actually have set up a whole deck and a escrow structure to address that issue one things that along those lines when I was a young lawyer we had a major multi-million dollar transaction going on and for whatever reason I was asked to sort of quarterback this thing and of course the buyer was a big conglomerate and they did a lot of due diligence on the company and this particular copy of manufacturing company matter of fact but it was so well run dot the i's and cross the t's on everything insurance corporate minutes employee handbook I mean you name every single thing that they could comply they did and so when the buyer looked at this they said what the heck we'll buy the stock of the company which is a little bit unusual because you don't necessarily want to pick up unknown liabilities when you buy the you know the equity of the company so the point of my my statement here is that it's hard to get clients to understand the importance of getting in the compliance thing but when they go to sell the business down the road it sure is nice not to have problems like you're a UK company that you have to structure or hold backs and and go through all these hoops if you have a very cleanly run company so you may have clients out there and say oh they'll never catch me or oh I don't make that enough sale or I don't sell through Amazon and bla bla bla bla bla that's not the point the point is that some day some buyer is going to be looking at that business and they're gonna be wondering why haven't you complying with South Dakota and we're gonna not do the deal because you have not been compliant even though you've never been caught even let's say or ever had a problem so it's just a little piece of advice if we can give our clients how important it is to keep up as best they can with compliance no company's perfect but as best they can Shelley I don't want to jump the gun but you have a number of clients that have dealt with that specific issue right where the fire comes in and goes whoa you have too many sales tax liabilities and they ran right yeah and and that's we're gonna get to some slides on that but you know I represent both buyers and sellers so it's not unusual for us to deal in the last 18 months in with this issue and it's hard we're gonna talk about bulk sales there's a whole bunch of things that in the first you know I've been doing the e-commerce type work probably for about eight years now where it's been a major part of my practice this is a like a new world because a lot of what we were doing before just doesn't apply anymore and I think I'm gonna wait till we get to them and these slides about some of that because I think I have specific examples there so last year's this is kind of what the the state the economic Nexus by state chart looked like kind of ugly with all the different symbols but the blue states had some sort of law regarding economic Nexus and some of those states actually were looking at it retroactively Lee we had mentioned Rhode Island initially they had a law back in 2017 where they tried they were one of the frontrunners Alabama was the front-runner I believe but Rhode Island was also one of the frontrunners to put these statutes in place even though they knew they were unconstitutional on this chart I'm not sure why Rhode Island's not blue but anyway maybe yeah this is what it looks like today so pretty much everybody and I'm going to talk about Kansas and Alaska because those are exceptions to the rule technically even with Kansas being blue it's blue because the Department of Revenue put out guidance saying hey we are if you're selling into our state then you have Nexus with our state should be collecting our tax they didn't have a threshold they they just basically followed the south dakota wayfarer decision with no thresholds at all what was interesting is the state attorney general for Kansas came out and said no the Department of Revenue can't do that what they've just done has no legal force in effect so though Kansas and that was their own attorney general that did that so by doing what the Department of Revenue in Kansas did they've basically squared off with their own attorney general the reason they did that is they couldn't get the law passed so there's been numerous bills in Kansas that have made it all the way to the governor's office and she has vetoed each one of them she has a good reason for vetoing each one of them it has nothing to do with economic Nexus she's vetoing them because of all the additional pork and whatever you call it a pork barreling that the legislators do when they through when they see a bill that is a slam dunk to pass they'll throw all these tailors on that have nothing to do with the bill at all they just throw them on there to try to get those passed and they can be completely different than what the bill is originally for so whenever that got to her office she vetoed it every time so they couldn't get it passed does she and she would say she said I don't like this I don't like this I don't like that so I'm vetoing it and then and then that department revenue put in there not really a rule it's more of a guidance and then they got their hands slapped by their own Attorney General so though Kansas is blue it's technically unconstitutional so it's really they really don't have anything Alaska is interesting Alaska most of us see Alaska as a state that has no sales tax but they do they have no state sales tax the local jurisdictions in Alaska a lot of them will have a sales tax the reason you don't hear much about it is the two biggest jurisdictions in Alaska Fairbanks and Anchorage don't local sales tax but all of these locations that you're probably never going to go to you may never sell to they'll have a tax rate and it could be up to nine percent so Nome the city of Nome put an economics Nexus ordinance through so they're the only ones so Alaska is technically gray here but just know that the city of Nome recently passed their economic Nexus rule and Florida is the other one Missouri in Florida and Kansas the other gray states don't have a tax sale sex okay just some things to point out on this this chart this is the state legislation and for economic Nexus one thing to point out is look in arrows look at Arizona they have tiered their statute so it's $200,000 threshold for this year next year goes to 150 in the year after that 100 there is no transactional threshold just a sale threshold and you'll notice on the threshold criteria here some most of them are gross some of them are retail the retail ones are more reasonable in my opinion those that are gross are somewhat unfair because you could technically if you are just if you are wholesaler and you are hitting the thresholds in all of your states you technically have a filing responsibility even though you have no tax liability that's your reseller filing is that you're talking about like a wholesaler or retailer someone who is selling into retail sale because it's not sale retail by any state definition but they're only looking at the gross sales to the state not whether it's retailer like DC is only on retail sales so if you don't make retail sales to DC residents you're fine so if you're always selling to resellers then you could have a filing liability but no tax liability California whoops California as we stated increased thirst to 500,000 when it was 100,000 but it is sales of tangible personal property my misspelling there Connecticut is another one that reduced theirs they went from 250,000 down to a hundred thousand but they left the and 200 transactions so if you have a hundred thousand dollars on one hundred and ninety-nine transactions you technically don't have a filing responsibility hit do you have to hit both of them the state of Kansas we talked about they're currently at any which is we what like we know is unconstitutional even under the South Dakota Wayfarer case still unconstitutional Massachusetts was five hundred thousand and one hundred transactions and they've reduced theirs to just a hundred thousand dollars and took away the transaction portion of it Missouri as we stated currently proposed New York was another one that the they had there's a three hundred thousand dollars and a hundred transactions and they've increased it to five hundred because the 300 was just too burdensome for them they weren't concerned about it the taxpayers it was too burdensome for them to process those returns because I'm quite honest the states don't want to process zero returns either because it's just a cost to them but under some of these statutes they have forced us to have to file a zero return when because we're hitting a threshold so Robert are you seeing anything on casual sales you know my example is sometimes you sell I don't know a piece of art a very large jewelry transaction but there's only one transaction but it's over a hundred thousand I think you have if it's an occasional sale if you don't typically sell art then you're going to be protected under the occasional sale exemption in that state if they have one you have to be careful and looking at those because sometimes they have an occasional sale exemption but it's impossible to me California is a great example of that yes they have an occasional sale exemption but no one ever meets it Missouri has an occasional sale exemption but it really it doesn't apply to businesses technically they put that statute in place for like if you're doing a yard sale it's those kinds of transactions that can qualify but once you get up a certain amount I think it's $3,000 I want to say in Missouri once you hit the $3,000 then you know you technically should be collecting the tax so unless you're doing a yard sale so my favorite example is you have a person and you know in the old days if you had a store that was in a single state and they shipped your product to another state there was never sales tax I mean they were supposed to be used tax but there was never sales tax on that and it was very common I you know people would travel to a state and buy their major purchase and ship it home well today under these new rules I think it's questionable as to whether you can really even do that so you know one shipment if it's big enough if it triggers could cause a retailer to actually have been obligated to collect sales tax and register on that in the state into which its shipping so this company made a one-time sale one time to the state of Ohio and I guess Ohio had audited the the buyers return whatever and they were coming to answering the client for $1,000 in sales taxes so we wrote it back under the old day it was either the Bella's Hess case of the quill I forget which one was in effect then and we said we don't have any because there's a one-time sale that's all he did was one sale ever in the 50-year history of the company never sold anything to that state they came back and wanted income tax returns in addition to the sales tax we ended up telling the client if they reduce a thousand dollars to a judgment and they register it here in Missouri and collect write him a check open up your checkbook write him a check for a thousand bucks it wasn't worth arguing with so so with with the states like we said there's only a few left notice that Washington go into the next slide Washington is a hundred thousand dollars or ten thousand dollar collector notice requirement so if not hitting the hundred thousand dollars which here at the above did ten thousand they still have a collector notice requirement in their state that came that comes from the Direct Marketing Association case a few years ago in Colorado Colorado was trying to get the states to force or was really trying to get a case to go to the Supreme Court which it did but in that case the Supreme Court ruled that since it was no tax and they weren't requiring a tax they're just requiring a notice which is basically what I call the tattletale law so if you're if you're selling to customers in Colorado back then then at the end of the year you had to provide a report to the state of Colorado saying these are all the people I sold to if I sold above a certain amount to them so these are all of my customers in Colorado so that give this gave the state an opportunity to go after those customers because they technically owe the use tax and they had no avenue of reach of reaching that transaction so they were going to they put that law into place to try to force the supreme court to force the sellers to start collecting tax everywhere it didn't work because the court said this is not a good case to overrule quill but Justice Kennedy yeah I was gonna say Justice Kennedy filed a concurring opinion saying it's now time we revisit yeah but this wasn't the case to do it and and that kind of started the that's when South Dakota Wayfarer alibi I'm sorry that's when South Dakota that's when Alabama and they started putting statutes in place to try to get them to the Supreme Court which eventually worked but you notice that most states have gotten rid of their collector notice requirement because when that case went through they started putting those laws into place because at least they'll know who's not paying the time well states have started to get rid of those Washington I think is the last one to hold on to it so what can you do you know as we've been talking about today so far registration and collection is is important if you're hitting those thresholds but one thing to also consider is if you're if you need to register with the Department of Revenue you need to consider whether you need to also register with the Secretary of State because the Secretary of State if you're actually doing business in the state then the Secretary of State has filings that you have to do as well so if you're selling into a state and shipping via common carrier then typically you don't have to register with Secretary of State any other connection will typically require registration because you're considered to be transacting business here are a few exceptions to that I think you all have it we don't necessarily have to go through them all in interest of time but these are the this is the general rule some states are a little different but generally they follow these definitions so if you're not these are if you're not transacting business in the state if you're doing any of these things you're not trinsic transacting business in the state if you're doing more than these then you have to register with the Secretary of State and that's important to remember because sometimes those penalties are not very friendly so we had one of our clients wanted to register in Illinois with Illinois was the example and he he realized that he had nexus technically before this year he had a new company but he had a Salesman going into Illinois last year so we checked with the with the Secretary of State to because when he was wanting to register going back and he was willing to do the sales tax returns for a year if that was necessary he just wanted to be in compliance we talked to the state and they said well the penalty for him not registering last year is anywhere from fifteen to thirty thousand dollars and that was a bit more than he wanted so so just know that those penalties can be significant potential penalties if you choose not to register and sometimes in there are situations where materiality it's just not material or I'm gonna just accept the risk and we realize that those are those are situations that companies have to consider we may advise you one way but you may choose to just accept the risk those risks will typically involve interest non filer penalties transacting business penalties which those are the secretary of state fraud penalties especially if you're collecting the you know we've had clients that have been collecting and just didn't realize I had one client that just didn't realize that they needed to pay that to the state they figured if interest they needed to collect the tax I wasn't sure what to do with it keep in mind in most states and maybe all states if you collect sales tax or payroll taxes and you don't pay it over there's personal liability for owners for officers for directors it's a little bit different than other kinds of taxes because it will these states will pierce the veil and come directly to you for failing to pay over so if you're going to collect the tax make sure you register first and then turn it over yes you don't want to trust fund it's called a trust fund penalty you don't want to trust fund penalty yeah the states are not very friendly there because they it like like I said they consider that fraud so they they tend to frown upon you collecting it without being registered so things to think about where do I have sell sex Nexus whether it's physical or economic if it's physical then you need to consider a voluntary disclosure if it's economic you may be able to avoid filing a voluntary disclosure but just know that this that if you do have physical Nexus going back then the state can always go back and get that the more you get past the three-year four year statute of limitations in that state they're less likely but they can always go back because it's always open so obviously you have to think about what states do I need a restaurant what's the materiality what what states can I assume the risk do I have a tax calculation engine am i capable even of collecting the tax and do I have my tax processes documented so one thing that when the case came out it was basic it was on an online retailer so most people thought well this applies to online sales not sales that I might make into the state where I shipped my product out there where the customer may call me and buy and I ship it just know that this this new stat or this new court case is not only applicable to online retailers it's applicable to all sellers will there be a grace period for getting registered yes typically once you hit those thresholds you have about 30 to 60 days to register with the state well this remaining states enact the threshold as we discussed earlier yes we expect them to do it within the next year and when a company reaches a threshold do they have Nexus going forward or next year once you reach the threshold and you have to register you generally have Nexus going forward if you if you're never hitting the threshold after that and you have no physical Nexus in the state it's usually a two year period before you can be register so you have to file zero returns for a couple years and then if you don't have if you're not hitting the threshold then you can be registered but generally once you have Nexus you have Nexus going forward will it be retroactive generally no but as Shelley said if you have physical Nexus there that is retroactive and they'll go back as far as they need to California and what did you say the other state was Florida is doing that even though Florida has no economic Nexus statute they're going after the physical Nexus and do non taxable transactions count toward the thresholds and generally yes as we as we showed you in the chart I think we've picked on the income tax Nexus quite a bit but you have some protection under protocol eighty six to 72 but don't be surprised if a lot of states go after it like Hawaii and North Carolina have done because when one state is successful with that then the other states tend to be copycats and will they increase audits probably because they're gaining they're getting all this new revenue that they never got before so that gives them more ability to hire more auditors which leads to more audits which leads to a better chance of you getting caught so I finally refer to this law and what's been going on for the last 18 months since Wayfair as you know we can write them but less script for a movie called catch me if you can because that's how most people have been this they're saying oh gosh you know what I'm not dealing with it let's see if they catch me but that's yeah I think the reality is it's going to change because originally we thought the states wanted staff up but the states see the economic opportunity and and they're going at it and I think that you'll you'll start to see more states getting aggressive and you know in the movie title after catch me if you can you know we'll include orange suits and stripes yeah and if you take that if you take that Avenue of catch me if you can then when you do get found it's going to hurt yeah so potential pitfalls of course penalties we've touched on the amnesty voluntary disclosure opportunities in the States amnesty is where the states have a certain period of time where you can register and they won't bother you going backward or you can register and they'll take away the penalties so it's not as painful for you but generally generally you're not going to see it's not going to be an amnesty period you might find a state or two that's in an amnesty period but they usually last just a few months they're not it's not an open-end misty generally though they'll Institute one say for June through September so if you file in that time period then you can get the advantages of an amnesty otherwise you're going to have the penalties a income act acts economic Nexus is a major pitfall as its as we get down further down the road I think there's going to be a lot of court cases on that so that'll be fun to watch for some of us tax returns will become due based on the date you start doing business in the state so practical things to consider Norman a start on this one well as we were talking about you know do you want to get ahead of the curve and a lot of the remote sellers and what have you it's Shelley said catch me if you can and that's not a very healthy attitude to have on any compliance issue whether it's IRS or state and so you want to consider voluntary compliance with all of these rules as they come online and as I said if nothing else it makes you a more attractive target for some takeover company if you're in the market to sell the company then it would have been otherwise the streamlined sales tax agreement we covered that can make things a little bit easier in terms of registration and getting forward not that you won't get follow-up questions from the various states that belong to that and this JFC corporation case I don't want to get into it in much detail it was a 2010 case it was you know in regards to KFC had franchises in Iowa but they had nothing else in Iowa they had bad franchises in Iowa and so they got the franchise fees but they didn't own the property in Iowa they didn't have locations in Iowa because it was the franchisor or the I'm sorry the franchisee that that had them and they would pay the royalties to KFC well KFC got deemed by Iowa because they have their labels on the chicken they have they're using their name they're using their brand in the state and so the state of Iowa was able to go after them for income tax so again being ahead of the curve is in the clients best interest when they do it or not as another question sometimes in addition to what they can do to go after Amazon for the Walmarts and all these marketplace sellers they can send the questionnaire directly to the client and these are no to be ignored the clients should not just ignore it or try and fill it out themselves they really need professional help when completing those because one little thing off and they will use it against your client so it's very important that if you do get the Nexus questionnaire that that comes out that you that you comply with the requests in a reasonable manner and in my experience dealing with the IRS and various State Department's of Revenue is if you deal straight with them then they'll just deal straight with you for the most part you always get some somebody who's not too nice or whatever but for the most part if they see that you're trying to comply you're trying to figure things out then they'll be very helpful for you if you get into a situation where you're being dodgy with them and not compliance or whatever then they don't get their attention it's waving the red flag in front of the bull and so you'll have state collection and once they get that they can make an assessment against that they can reduce that to judgment so this fellow and Kell in Philadelphia has to worry that California is going to reduce said assessment one point six million dollars to a judgment registered in Pennsylvania and start collecting on assets so that's a big-time risk if it comes down hard knuckle ball and a lot of these states will do that we never had a problem with the thousand dollar guy they somehow Ohio never got around to to doing that they tried to intimidate him and then paying it but they never got around to it and just note and sorry nobody and just know that there are still certain exemptions or loopholes a chicken user you do have the remaining constitutional defenses under complete auto right we won't go into that that can you know that that's best for an offside discussion but just know that you still have those Protection's charlie okay take the clicker I'll just do this from here so my slides are pretty content heavy but they are fortunately the kind you can read because I want to leave time for questions a couple of things that have happened since this whole Wayfarer decision and it's changed the way businesses are being sold it's changed the way transactions happen okay so I have given you some content heavy things on your table first of all bulk sales any of you you know buy or sell companies in the last 40 years 50 years everybody waived the bulk sales laws okay it was pretty standard the buyer and the seller said we'll take that risk will indemnify you not anymore because of Wayfair especially in the e-commerce world we are seeing buyers refused to waive bulk sale and I'll tell you what when I represent a buyer not waiving bulk sales anymore and when I represent us the seller I politely put in the waiver and hopefully hopefully buyer's attorney doesn't really understand this stuff sometimes I'm lucky sometimes I'm not sometimes we get into big fights over the topic so here are the problems if you if you don't waive bulk sales and they say we want you to comply in states in which you've never registered you can't get a clearance certificate okay you know in the old days it was easy you had one store five stores a hundred stores all in one state it was one state you were registered well now you're doing business in 50 states you might be a business based in Hong Kong or the UK or here in Missouri it doesn't matter but I can't get you a clearance certificate in a state you're not registered in there's just nothing I could do about it so it makes for a messy deal my most recent sale that we a couple weeks ago happened to be a New Jersey company and he was registered in New Jersey the buyer insisted on the complying with the bulk sales laws we said fine we complied ten days later we got a notice from the state of New Jersey please hold four hundred and forty eight thousand five hundred dollars as the buyer from the purchase price as this is gonna be unbelievable to you capital gains tax we believe the seller will owe upon the sale of this business capital gains tax I mean you know you normally report that stuff at the end of the year on your tax return right my seller is planning on investing his money in a opportunity zone he doesn't intend to pay any sales tab any capital gains act because he intends it to be a rollover okay we are in the process of working with the state of New Jersey to respond to their questionnaire the questionnaire provided an exception for like-kind exchange 1031 exchange it did not provide a an exception for opportunities on reinvestment mm-hmm okay I am sitting in our trust fund on almost $500,000 because the buyer didn't have a lawyer didn't know what to do and I said well you know as the we were the escrow agent and I said his escrow agent will hold it for you and as part of our deal we'll hold it and and deal with this but that's a very real issue that came out of complying with bulk sales laws okay we talked about selling stock talked a little bit about how do you structure it what do you do what we're seeing on stock deals is an escrow so when I represented a buyer of these UK companies we insisted on a sales tax analysis we hire someone like Robert to do a calculation of what the potential sales tax burden would be generally going back to 2015 in California prospectively in the states that have been clear about what they're doing we figure out what that number is that number is then put into an escrow held the question is for how long we've been saying at least three years and of course we have the problem of even a three years if they never filed potentially it could be forever but we agreed in three years we agreed that you know the buyer would put a strategy together on what they are going to do about paying sales tax going forward and this fund the seller's proceeds are now sitting in our trust account for three years again for one of those cases you know it's over a half a million dollars I mean think about this this is money that was never collected so this is hitting your purchase price it is actually a ding so you know it's all your company for 10 million for 20 million this is a half million dollars a million dollars sitting in a lawyer's trust fund the Florida Bar thinks everybody because they're the ones that got the interest but that's what's happening with the money it's crazy assets you're definitely gonna have an intimate ofin there is nobody who's going to take on your sales tax income tax or other tax liabilities arising prior to closing if you don't disclose those issues they're going to come back after you for fraud if that comes and hits the buyer okay but at least if you disclose it then we will say okay it's not fraud you just owe the money okay so on your desk and I will think Lexus I have the software that lets me do 50 state surveys here you go these are the bulk sales laws you will see some states have none some states put the burden on the seller some states put the burden on the buyer so if you are a buyer of a company that has potentially sales tax income tax other kinds of tax liabilities you might have an obligation to know finances stay before you do the deal in New Jersey got to notify 10 days before you do the transaction alright so in our practice group and Kevin who's sitting out in the audience's remember my practice group you know this is becoming like a hotter topic than other kinds of you know normally you're worried about are the books and records correct no we're worried about how we're gonna deal with sales tax okay that to complicate it we now have marketplace facilitators so what's a marketplace facilitator I gave you a little chart I actually updated it we have a Turk that's in the slides I'm not going to go through it I'm going to tell you the two the one that's on your desk because I think this is the current one I sent you the other day okay 34 states now have marketplace facilitator laws so what does that mean it's a person that contracts with marketplaces facilitators to facilitate for consideration the sale of a marketplace seller's product through physical or electronic market places such as Amazon okay a marketplace seller is a seller that is not related to the marketplace facilitator or any physical or electronic marketplace operated you could be both okay you could be both so you could be selling through a marketplace facilitator and you could also be selling on your own on your own website if you trigger under the marketplace facilitator structure like Amazon Walmart eBay you're selling on those sites and you trigger or you don't quite trigger but then you have sites maybe direct to your own website you add those together this is massively confusing for smaller businesses because as you might imagine you now need a way to figure out when you've triggered in the marketplace when you now trigger in your own seller system you have to be able to add those things together California actually has a booklet on this on how to comply some of the other states do as well but California's you know I don't know what 50 60 pages of how you do this needless to say is a huge burden on Interstate Commerce if our Congress doesn't act this is kind of a nightmare for small business not as simple as the court said it would be is it no yeah not really so what does the legislation say shift the sales tax collection and remittance obligations to the marketplace facilitator they shifted it to Amazon to waive fair okay they're now responsible for calculating collecting remitting and refunding sales tax so if a product is returned the sales tax has to be funded as well okay in certain states local taxes aren't included meaning there's 9600 taxing jurisdictions in the United States there are only 50 states so my math says ninety five hundred and fifty jurisdictions some of which are and are not included in that I don't know even though to tell you on that so I pull disclosure I'm married to a tax lawyer you know these guys you know what they do I get it I understand it I appreciate it for those of us that are like corporate lawyers that do a lot of business transactional stuff this is just like you know it's mind-blowing it's like what the heck am I going to do how do I advise people when all they want to do is be in business and be successful so that's the chart I'm not going to go over because that's October 11th and since October 11th it's changed that's why you have one on your desk and by the way the one on your desk might be wrong already I printed to two days ago it's going that fast what'd I tell you okay more than half as we've said so now it's 34 Amazon handles collections only for Amazon the states will require the salary went through most of this okay I gave you an addendum I told you about califor yeah so you know the one thing and I'll have to Robert but the one thing I really want to leave you with as you think about this is as businesspeople somehow we have to figure out how it is we're gonna keep being in business you know and we cut meant about talking to your Congressman really you need to because if we as a country don't figure out how to create a single system for this we live in a global economy my clients are literally all over the world we live in a global economy and we're either going to be competitive in the global economy or we're not and as a country if we don't do something about this and if we don't get our congressmen our senators our judges to start to understand the burden they're putting on Interstate Commerce what we're gonna find is what I'm going to call Untouchables you know people from other countries selling into the United States because they think catch me if you can and the truth is it's gonna be hard to catch those guys but they're going to be the competitive sellers so we do have to come up with something we do we really do need to address this because the burden on all of you as sellers is huge to comply with this thing

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